Weldon's Money Monitor: CNBC Street Signs

The biggest 'surprise' of the year has been the ability of gold to break free of the USD...

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Emerging Markets have been stellar performers in 2005, with yield spreads over U.S. Treasuries narrowing to RECORD 'lows' in just the last week amid a flurry of credit rating upgrades. Similarly, many emerging market stock indexes have posted triple-digit rates of return over the last 3 years, FAR outperforming the U.S. stock indexes.

Indeed, several emerging market stock indexes are currently sitting at all-time highs, including the MSCI Emerging Market Index.

Subsequently, emerging market currencies have NOT followed the EUR, JPY and GBP to the downside, bucking the USD bull trend, and appreciating against most ALL currencies.

Supported by the bull market in Copper, and rising 'real' rates of return, the Chilean Peso has been among the world's strongest currencies this year, breaking out against the USD (dollar breakdown).

The biggest 'surprise' of the year has been the ability of gold to break free of the USD, and appreciate against almost ALL paper currencies, including the USD, the EUR, emerging market currencies and, most specifically, against the JPY, as DECADES of disinflation and then overt deflation has driven the Bank of Japan to a policy of quantitative easing, defined by the provision of unlimited EXCESS liquidity.

Now, the JPY is breaking down as the markets view Japan as the LAST place where 'reflation' has yet to take hold. The markets are likely to continue pounding the JPY until the CPI begins to trend towards a positive yr-yr pace of inflation.

We believe that such a trend in Japanese CPI remains far out on the macro-horizon, and thus we view the bull market in Yen-Gold as providing the REAL DEAL, in terms of monetary paper debasement defined.

The divergent moves in the USD and Gold is reflective of the fact that while the Fed has raised the short-term cost of money, it has NOT done so to the degree which would actually inhibit the demand, and/or supply, or credit.

In fact, the credit expansion is hitting new highs globally, with money supply growth AND consumer credit rising exponentially in NUMEROUS countries, including China, Russia, Europe and the U.S.

One way to look at this is to calculate the price of USD based Gold, as a function of the yield on the US long-bond, as noted in the chart below.

Relative to the still LOW yield on the US 30-Year T-Bond, Gold is making a new all-time high, in excess of $1000 equivalent, per ounce.

Hence, global equity markets continue to reflate.

Leading the pack are commodity-related equities, such as Energy service sector shares and Gold mining shares.

Observe the bull market breakout in big-cap mining behemoth Newmont (NEM). The chart speaks for itself, and exemplifies our macro-outlook for 2006 which spotlights the CONTINUED expansion in paper monetary debasement by global central banks.

From the macro-monetary perspective, for 2006, we remain bullish on bullion in ALL currencies.

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